NB18-09: Late-Life Income from Pre-Retirement to Death: Evidence from IRS Tax Data

Using Internal Revenue Service (IRS) tax data, we will track Americans’ income trajectories from older age through death, identify the various sources of late-life income, and assess the adequacy of that income. While previous research has explored these topics, our use of IRS data will make this study the first of its kind.
Our primary objective is to develop summary measures that distill the rich, complex array of tax-related variables into more easily digestible statistics that shed light on household financial security as it evolves over time. For example, comparing an expansive measure of a household’s income at age 70 (including wage income, Social Security benefits, pension income, and investment income) to that same household’s income at age 85 (measured in the same way) provides insight into whether the household’s finances were stable, improving, or deteriorating over time. By analyzing such a household-level summary for all households within a birth cohort, it is possible to learn about the experience of a typical household and the degree of dispersion in experiences across households, as well as the correlates of better and worse financial trajectories. We will take great care to examine the robustness of our findings to changes in the definitions of our summary measures, and we will identify the components of those summary measures that are most important for driving the key patterns in the data.
We will also analyze financial decisions individuals make as they approach, enter, and live through retirement, including retirement account contributions and rollover, distribution, and annuitization choices. In addition, we will observe Social Security claiming behaviors (e.g., early, normal, or late claiming), changes in marital status (e.g., getting divorced or becoming widowed), and major health shocks.